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EN BANC

[G.R. No. L-45911. April 11, 1979.]

JOHN GOKONGWEI, JR., petitioner,vs. SECURITIES ANDEXCHANGE COMMISSION, ANDRES M. SORIANO, JOSE M.SORIANO, ENRIQUE ZOBEL, ANTONIO ROXAS, EMETERIOBUAO, WALTHRODE B. CONDE, MIGUEL ORTIGAS, ANTONIOPRIETO, SAN MIGUEL CORPORATION, EMIGDIO TANJUATCO,SR., and EDUARDO R. VISAYA, respondents.

De Santos, Balgos & Perezfor petitioner.

Angara, Abello, Concepcion, Regala, Cruz Law Offices for respondents Sorianos.

Sequion Reyna, Montecillo & Ongsiako for respondent San Miguel Corporation.

R. T. Capulongfor respondent Eduardo R. Visaya.

SYNOPSIS

Petitioner (a) seeks to declare null and void the amended by-laws of respondent

corporation which disqualifies any stockholder engaged in any business that competeswith or is antagonistic to that of the corporation from being nominated or elected to theBoard of Directors; (b) assails the order of the Securities and Exchange Commissiondenying his right to inspect the books of a wholly-owned subsidiary of respondentcorporation; (c) assails the act of the Securities and Exchange Commission in allowingthe stockholders of respondent corporation to ratify the investment of corporate funds in aforeign corporation.

The Court voted unanimously to grant the petition insofar as it prays that petitioner beallowed to examine the books and records of the wholly-owned subsidiary of respondent

corporation.

For lack of necessary votes the Court denied the petition insofar as it assails the validityof the by-laws and ratification of the foreign investment of respondent corporation.

On the validity of the amended By-laws, six justices (Barredo, Makasiar, Antonio,Santos, Abad Santos and De Castro, JJ.) voted to sustain the validityper se of theamended by-laws and to dismiss the petition without prejudice to the question of

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petitioner's actual disqualification from running if elected from sitting as director ofrespondent corporation being decided, after a new and proper hearing by the Board ofDirectors of said corporation, whose decision shall be appealable to the respondentSecurities and Exchange Commission and ultimately to the Supreme Court.

The aforementioned six justices, together with Fernando, J., voted to declare the issue onthe validity of the foreign investment of respondent corporation as moot.

Fred Ruiz Castro, C.J., reserved his vote on the validity of the amended by-laws pendinghearing by this Court on the applicability of section 13(5) of the Corporation law topetitioner.

Fernando, J., reserved his vote on the validity of subject amendment to the by-laws butotherwise concurs in the result.

Four Justices (Teehankee, Conception Jr., Fernandez and Guerrero, JJ.) in a separateopinion voted against the validity of the questioned amended by-laws and held that thisquestion should properly be resolved first by the SEC as the agency of primaryjurisdiction. They concur in the result that petitioner may be allowed to run for and sit asdirector in the scheduled election and subsequent elections until disqualified after properhearing by the respondent's Board of Directors and petitioner's disqualification shall havebeen sustained by respondent SEC en banc and ultimately by final judgment of thisCourt.

SYLLABUS

1.APPEAL; SUPREME COURT MAY RESOLVED CASE ON THE MERITS,INSTEAD OF REMANDING IT TO LOWER COURT. The Supreme Court alwaysstrives to settle the entire controversy in a single proceeding, "leaving no root or branchto bear the seeds of future litigation," and to decide a case on the merits instead ofremanding it to the trial court for further proceedings (a) where the ends of justice wouldnot be subserved by the remand of the case, or (b) where public interest demands an earlydisposition of the case; or (c) while the trial court had already received all the evidencepresented by both parties and the Supreme Court is in a position, based upon saidevidence, to decide the case on its merits.

2.ID.; ID.; QUESTION OF PRIMARY JURISDICTION HAS NO APPLICATIONWHERE ONLY QUESTION OF LAW IS INVOLVED. The doctrine of primaryjurisdiction has no application where only a question of law is involved. Becauseuniformity may be secured through review by a single Supreme Court questions of lawmay appropriately de determined in the first instance by courts.

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3.ID.; VALIDITY OF BY-LAW OF CORPORATION IS A QUESTION OF LAW. The validity of reasonableness of a by-laws of a corporation, whether the by-law is inconflict with the law of the land, or with the charter of the corporation, or is in a legalsense unreasonable and therefore unlawful is purely a question of law. This rule issubject, however, to the limitation that where the reasonableness of a by-law is a mere

matter of judgment, and one upon which reasonable minds must necessarily differ, acourt would not be warranted in substituting its judgment instead of the judgment ofthose who are authorized to make by-laws and who have exercised their authority.

4.CORPORATIONS; POWER TO ADOPT BY-LAWS. Every corporation has theinherent power to adopt by-laws for its internal government, and to regulate the conductand prescribe the rights and duties of its members towards itself and among themselves inreference to the management of it affairs. In the absence of positive legislative provisionslimiting it, every private corporation has this inherent power as one of its necessary andinseparable legal incidents, independent of any specific enabling provision in its character

or in general law, such power of self-government being essential to enable thecorporation to accomplish the purposes of its creation.

5. ID.; ID.; QUALIFICATIONS OF OFFICERS AND EMPLOYEES. The term"qualifications" under section 21 of the Corporation Law which expressly empowers acorporation to prescribed in its by-laws the qualifications of directors must necessarilyrefer to qualifications in addition to that specified by section 30 of the Corporation law,which provides that "every director must own in his own right at least one share of thecapital stock of the stock corporation of which he is a director."

6.ID.; STOCKHOLDERS MUST ABIDE BY RULE OF THE MAJORITY. Anyperson "who buys stock in a corporation does so with the knowledge that its affairs aredominated by a majority of the stockholders and that he impliedly contracts that the willof the majority shall govern in all matters within the limits of the act of incorporation andlawfully enacted by-laws and not forbidden by law. To this extent the stockholder may beconsidered to have parted with his personal right or privilege to regulate the dispositionof his property which he has invested in the capital stock of the corporation, andsurrendered it to the will of majority of his fellow incorporators. It cannot, therefore, bejustly said that the contract, express or implied, between the corporation and thestockholders is infringed by any act of the former which is authorized by a majority.

7.ID.; ID.; AMENDMENT OF BY-LAWS; RIGHT OF DISSENTING MINORITYSTOCKHOLDER. Where the articles of the incorporation or the by-laws of acorporation has been amended by the required number of votes as provided for in theCorporation Law, and the amendment changes, diminishes or restricts the rights of theexisting stockholders, the dissenting minority has only one right, viz.; to object thereto inwriting and demand payment of his share.

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8.ID.; STOCKHOLDER HAS NO VESTED RIGHT TO BE ELECTED DIRECTOR. A stockholder has no vested right to be elected director, where the law at the time suchright as stockholder was acquired contained the prescription that the corporate charter andthe by-law will be subject to amendment, alteration and modification.

9.ID.; DIRECTOR STANDS IN A FIDUCIARY RELATION TO CORPORATIONAND STOCKHOLDER. Although in the strict and technical sense, directors of aprivate corporation are not regarded as trustees, there cannot be any doubt that theircharacter is that of a fiduciary insofar as the corporation and the stockholders as a bodyare concerned. As agents entrusted with the management of the corporation for thecollective benefit of the stockholders, "they occupy a fiduciary relation, and in this sensethe relation is one of trust." The ordinary trust relationship of directors of a corporationand stockholders is not a matter of statutory or technical law. It springs from the fact thatdirectors have the control and guidance of corporate affairs and property and hence of theproperty interests of the stockholders. Equity recognizes that stockholders are the

proprietors of the corporate interests and are ultimately the only beneficiaries thereof.

10.ID.; BY-LAWS; QUALIFICATION OF DIRECTORS. Corporations have thepower to make by-laws declaring a person employed in the service of a rival company tobe ineligible for the corporation's Board of Directors.

11.ID.; ID.; ID.; CONFLICT OF INTERESTS. An amendment which rendersineligible, or if elected, subjects to removal, a director if he be also a director if he be alsoa director in a corporation whose business is in competition with or is antagonistic to theother corporation is valid. This is based upon the principle that were the director alsoemployed in the service of a rival company, he cannot serve both, but must betray one orthe other. Thus, an officer of a corporation cannot engage in a business in directcompetition with that of the corporation where he is a director by utilizing information hehas received as such officer, under "the established law that a director or officer of acorporation may not enter into a competing enterprise which cripples or injuries thebusiness of the corporation of which he is an officer or director."

12.ID.; ID.; DOCTRINE OF "CORPORATE OPPORTUNITY". Corporate officersare not permitted to the use their position of trust and confidence to further their interests.The doctrine of "corporate opportunity" is precisely a recognition by the courts that thefiduciary standards could not be upheld where the fiduciary was acting for two entities

with competing interests. This doctrine rests fundamentally of the unfairness, inparticular circumstances, of an officer or director taking advantage of an opportunity forhis own personal profit when the interest of the corporation justly calls for protection.

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13.ID.; MONOPOLIES. The Constitution and the law prohibit combinations inrestraint of trade and unfair competition. Thus, section 2 of article XIV of theConstitution provides: "The State shall regulate or prohibit private monopolies when thepublic interest so requires. No combination in restraint of trade or unfair competitionshall be allowed." These anti-trust laws or laws against monopolies or combinations in

restraint of trade are aimed at raising levels of competition by improving the consumers'effectiveness as the final arbiter in free markets. They are designed to preserve free andunfettered competition as the rule of trade, and operate to forestall concentration ofeconomic power.

14.ID.; ID.; NATURE AND DEFINITION OF MONOPOLY. A "monopoly"embraces any combination, the tendency of which is to prevent competition in the broadand general sense, or to control prices to the detriment of the public. It is theconcentration of business in the hands of a few. The material consideration indetermining its existence is not that prices are raised and competition actually excluded,

but that power exists to raise prices or exclude competition when desired. It includes acondition produced by the mere act of individuals. Its dominant thought is the notion ofexclusiveness or unity, or the suppression of competition by the unification of interest ormanagement, or thru agreement and concert of action. An express agreement is notnecessary for the existence of a combination or conspiracy in restraint of trade.

15.ID.; ID.; STOCK OWNERSHIP IN AGRICULTURAL CORPORATIONS,LIMITATIONS. The election of the president and controlling shareholder of acorporation engaged in agriculture, to the board of another corporation, also engaged inagriculture, may constitute a violation of the prohibition contained in section 13 (5) of the

Corporation Law which provides in part that "any stockholder of more than onecorporation organized for the purpose of engaging in agriculture may hold his stock insuch corporations solely for investment and not for the purpose of bringing about orattempting to bring about a combination to exercise control of such corporations."

16.ID.; BY-LAW; QUALIFICATION IF MEMBERS OF THE BOARD; EQUALPROTECTION. If the by-law were to be applied in the case of one stockholder butwaived in the case of another, then it could be reasonably claimed that the by-law wasbeing applied in a discriminatory manner, but not if the by-law, by its terms, applies to allstockholders. The equal protection clause of the Constitution requires only that the by-law operate equally upon all persons of a class. Sound principles of public policy and

management support the view that a by-law which disqualifies a competitor from electionto the Board of Directors of another corporation is valid and reasonable.

17.ID.; ID.; PROTECTION OF LEGITIMATE CORPORATE INTERESTS. In theabsence of any legal prohibition or overriding public policy, wide latitude may beaccorded to the corporation in adopting measures to protect legitimate corporate interests.

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18.ID.; COMPETITION DEFINED. "Competition" implies a struggle for advantagebetween two or more forces, each possessing, in substantially similar if not identicaldegree, certain characteristics essential to the business sought. It means an independentendeavor of two or more persons to obtain the business patronage of a third by offeringmore advantageous terms as an inducement to secure trade. The test must be whether the

business does in fact compete, not whether it is capable of an indirect and highlyunsubstantial duplication of an isolated or non characteristic activity.

19.ID.; ID.; EXERCISE OF POWER TO DISQUALIFY A STOCKHOLDER FROMBEING MEMBER OF THE BOARD. The amended by-laws which grants the Boardthe power by 3/4 votes to bar a stockholder from his right to be elected as director wheresuch stockholder is found to be engaged in a "competitive or antagonistic business" isvalid. However, consonant with the requirement of due process, there must be duehearing at which the stockholder must be given the fullest opportunity to show that he isnot covered by the disqualification. As trustees of the corporation and of the

stockholders, it is the responsibility of directors to act with fairness to the stockholders.Pursuant to this obligation and to remove any suspicion that this power may be utilizedby the incumbent members of the Board to perpetuate themselves in power, any decisionof the Board to disqualify a candidate for the Board of Directors should be reviewed bythe Securities and Exchange Commission en banc and its decision shall be final unlessreversed by the Supreme Court on certiorari.

20.ID.; REVIEW OF ACTION OF THE BOARD OF DIRECTORS. Where the actionof a Board of Directors is an abuse of discretion, or forbidden by statute, or is againstpublic policy, or is ultra vires, or is a fraud upon minority stockholders or creditors, or

will result in waste, dissipation or misapplication of the corporate assets, a court of equityhas the power to grant appropriate relief.

21.ID.; STOCKHOLDER'S RIGHT; INSPECTION OF BOOKS. The stockholders'right of inspection of the corporation's books and records is based upon their ownershipof the assets and property of the corporation. It is an incident of ownership of thecorporate property, whether this ownership or interest be termed an equitable ownership,a beneficial ownership, or quasi-ownership. It is predicated upon the necessity of self-protection.

22.ID.; ID.; RIGHT MUST BE EXERCISED IN GOOD FAITH. Where a right is

granted by statute to the stockholder, it is given to him as such and must be exercised byhim with respect to his interest as stockholder and for some purpose germane thereto orin the interest of the corporation. In other words, the inspection has to be germane to thepetitioner's interest as a stockholder, and has to be proper and lawful in character and notinimical to the interest of the corporation. It must be exercised in good faith, for specificand honest purpose, and not to gratify curiosity, or for speculative or vexatious purposes.

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23.ID.; ID.; COURT MAY INQUIRE INTO MOTIVE OF STOCKHOLDER. Onapplication for mandamus to enforce the right to examine the books of a corporation, it isproper for the court to inquire into and consider the stockholder's good faith and hispurpose and motives in seeking inspection. The right given by the statute is not absoluteand may be refused when the information is not sought in good faith or is used to the

detriment of the corporation.

24.ID.; ID.; RIGHT TO EXAMINE BOOKS OF A WHOLLY OWNED SUBSIDIARY. While the right of a stockholder to examine the books and records of a corporation fora lawful purpose is a matter of law, the right of such stockholder to examine the booksand records of a wholly-owned subsidiary of the corporation in which he is a stockholderis a different thing. Where a foreign subsidiary is wholly owned by respondentcorporation and, therefore, under its control, it would be in accord with equity, good faithand fair dealing to construe the statutory right of a stockholder to inspect the books andrecords of the corporation as extending to books and records of such wholly owned

subsidiary which are in respondent corporation's possession and control.

25.ID.; BOARD DIRECTORS; POWER TO INVEST FUNDS. Section 17-1/2 of theCorporation Law allows a corporation to "invest its fund in any corporation or businessor for any purpose other than the main purpose for which it was organized" provided thatits Board of Directors has been so authorized by the affirmative vote of stockholdersholding shares entitling them to exercise at least two-thirds of the voting power. If theinvestment is made in pursuance of the corporate purpose, it does not need the approvalof the stockholders. It is only when the purchase of shares is done solely for investmentand not to accomplish the purpose of its incorporation that the vote of approval of the

stockholders holding shares entitling them to exercise at least two-thirds of the votingpower is necessary.

26.ID.; ID.; RATIFICATION OF ACT OF BOARD OF DIRECTORS. Where theBoard of Directors had no authority to make an investment, the corporation, like anindividual, may ratify and thereby render binding upon it the originally unauthorized actsof its officers or other agents. Mere ultra vires acts or those which are not illegal and voidab initio, but are not merely within the scope of the articles of incorporation, are merelyvoidable and may become binding and enforceable when ratified by the stockholders.

27.ID.; ID.; INVESTMENT IN AID OF CORPORATE PURPOSE. The purchase of

beer manufacturing facilities by San Miguel Corporation was an investment in the samebusiness as its main purpose in its Articles of Incorporation and is relevant to thecorporate purpose.

28.ID.; ID.; SUBMISSION OF ASSAILED INVESTMENT FOR RATIFICATION BYSTOCKHOLDERS. The mere fact that a corporation submits the assailed investmentto the stockholders for its ratification at the annual meeting cannot be construed as an

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admission that the corporation had committed an ultra vires act, considering the commonpractices of corporations of periodically submitting for ratification of their stockholdersthe acts of their directors, officers and managers.

BARREDO, J., concurring:

1.JUDGMENTS; DISMISSAL FOR LACK OF NECESSARY VOTES; LAW OF THECASE. Where petitioner and respondents placed the issue of the validity of amendedby-laws squarely before the Court for resolution and six justices voted in favor, whilefour justices voted against, its validity, thereby resulting in the dismissal, of the petition"insofar as it assails the validity of the amended by-laws . . . for lack of necessary votes,"such dismissal is the law of the case as far as the parties are concerned albeit the majorityof six against four justices is not doctrinal in the sense that it cannot be cited asnecessarily a precedent for subsequent cases. This means that the petitioner andrespondents are bound by the foregoing result, namely that the Court en banc has not

found merit in the claim that the amended by-laws in question are invalid. In other words,the issue of the challenged amended by-laws is already a settled matter for the parties asthe law of the case, and said amended by-law already enforceable in so far as the partiesare concerned. Petitioner may not thereafter act on the assumption that he can revive theissue of validity whether in the Securities and Exchange Commission, the Supreme Courtor in any other forum, unless, he proceeds on the basis of a different factual milieu fromthe setting of the case. Only the actual implementation of the impugned amended by-lawsremained to be passed upon by the Securities and Exchange Commission.

2.ID.; ID.; DECISION ON THE MERITS. It is somewhat of a misreading andmisconstruction of Section 11 of Rule 56, contrary to the well-known established normobserved by the Supreme Court, to state that the dismissal of a petition for lack ofnecessary votes does not amount to a decision on the merits. The Supreme Court isdeemed to find no merit in a petition in two ways, namely, (1) when eight or moremembers vote expressly in that sense and (2) when the required number of justicesneeded to sustain the same cannot be had.

DE CASTRO, J., concurring:

1.CORPORATION; STOCKHOLDERS; DISQUALIFICATION TO BE ELECTEDDIRECTOR. If a person became a stockholder of a corporation and gets himselfelected as a director, and while he is such a director, he forms his own corporationcompetitive or antagonistic to the corporation of which he is a director, and becomesChairman of the Board and President of his own corporation, he may be removed fromhis position as director, admittedly one of trust and confidence. If this is so, a person

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controlling, and also the Chairman of the Board and President of, a corporation, may bebarred form becoming a member of the Board of Directors of a competitive corporation.

2.ID.; AGRICULTURE, CORPORATION ENGAGED IN. The scope of theprovision of Section 13(5) of the Philippine Corporation Law should be limited to

corporations engaged in agriculture, only as the word "agriculture" refers to its morelimited meaning as distinguished from its general and broad connotation. The term wouldthen mean "farming" or raising the natural products of the soil, such as by cultivation, inthe manner as is required by the Public Land Act in the acquisition of agricultural land,such as by homestead, before the patent may be issued, but does not extend to poultryraising or piggery which may be included in the term "agriculture" in its broad sense.

3.JUDGMENTS; LAW OF THE CASE. Although only six votes are for upholdingthe validity of the by-laws, their validity is deemed upheld as constituting the "law of thecase." It could not be otherwise, after the petition is dismissed with the relief sought do

declare null and void the said by-laws being denied in effect. A vicious circle would becreated should petitioner come against to the Court, raising the same question he raised inthe present petition, unless the principle of the "law of the case" is applied.

TEEHANKEE, CONCEPCION JR., FERNANDEZ and GUERRERO,JJ.: Supplementto separate opinion.

1.JUDGMENTS; LAW OF THE CASE. The doctrine of the law of the case may beinvoked only where there has been a final and conclusive determination of an issue in thefirst case later invoked as the law of the case. It has no application where the judgment inthe first case is inconclusive, as where no final and conclusive determination could bereached on account of lack of necessary votes and the case was simply dismissedpursuant to Rule 56, Section 11. It cannot be contended that the Supreme Court indismissing the petition for lack of necessary votes had directly ruled on the issuepresented when it itself could not reach a final conclusive vote thereon.

D E C I S I O N

ANTONIO,Jp:

The instant petition for certiorari, mandamus and injunction, with prayer for issuance ofwrit of preliminary injunction, arose out of two cases filed by petitioner with theSecurities and Exchange Commission, as follows:

SEC CASE NO. 1375

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On October 22, 1976, petitioner, as stockholder of respondent San Miguel Corporation,filed with the Securities and Exchange Commission (SEC) a petition for "declaration ofnullity of amended by-laws, cancellation of certificate of filing of amended by-laws,injunction and damages with prayer for a preliminary injunction" against the majority ofthe members of the Board of Directors and San Miguel Corporation as an unwilling

petitioner. The petition, entitled "John Gokongwei, Jr., vs. Andres Soriano, Jr., Jose M.Soriano, Enrique Zobel, Antonio Roxas, Emeterio Buao, Walthrode B. Conde, MiguelOrtigas, Antonio Prieto and San Miguel Corporation", was docketed as SEC Case No.1375.

As a first cause of action, petitioner alleged that on September 18, 1976, individualrespondents amended by bylaws of the corporation, basing their authority to do so on aresolution of the stockholders adopted on March 13, 1961, when the outstanding capitalstock of respondent corporation was only P70,139.740.00, divided into 5,513,974common shares at P10.00 per share and 150,000 preferred shares at P100.00 per share. At

the time of the amendment, the outstanding and paid up shares totalled 30,127,043, with atotal par value of P301,270,430.00. It was contended that according to section 22 of theCorporation Law and Article VIII of the by-laws of the corporation, the power to amend,modify, repeal or adopt new by-laws may be delegated to the Board of Directors only bythe affirmative vote of stockholders representing not less than 2/3 of the subscribed andpaid up capital stock of the corporation, which 2/3 should have been computed on thebasis of the capitalization at the time of the amendment. Since the amendment was basedon the 1961 authorization, petitioner contended that the Board acted without authorityand in usurpation of the power of the stockholders.

As a second cause of action, it was alleged that the authority granted in 1961 had alreadybeen exercised in 1962 and 1963, after which the authority of the Board ceased to exist.

As a third cause of action, petitioner averred that the membership of the Board ofDirectors had changed since the authority was given in 1961, there being six (6) newdirectors.

As a fourth cause of action, it was claimed that prior to the questioned amendment,petitioner had all the qualifications to be a director of respondent corporation, being asubstantial stockholder thereof; that as a stockholder, petitioner had acquired rightsinherent in stock ownership, such as the rights to vote and to be voted upon in the

election of directors; and that in amending the by-laws, respondents purposely providedfor petitioner's disqualification and deprived him of his vested right as afore-mentioned,hence the amended by-laws are null and void. 1

As additional causes of action, it was alleged that corporations have no inherent power todisqualify a stockholder from being elected as a director and, therefore, the questionedact is ultra vires and void; that Andres M. Soriano, Jr. and/or Jose M. Soriano, while

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representing other corporations, entered into contracts (specifically a managementcontract) with respondent corporation, which was avowed because the questionedamendment gave the Board itself the prerogative of determining whether they or otherpersons are engaged in competitive or antagonistic business; that the portion of theamended by-laws which states that in determining whether or not a person is engaged in

competitive business, the Board may consider such factors as business and familyrelationship, is unreasonable and oppressive and, therefore, void; and that the portion ofthe amended by-laws which requires that "all nominations for election of directors . . .shall be submitted in writing to the Board of Directors at least five (5) working daysbefore the date of the Annual Meeting" is likewise unreasonable and oppressive.

It was, therefore, prayed that the amended by-laws be declared null and void and thecertificate of filing thereof be cancelled, and that individual respondents be made to paydamages, in specified amounts, to petitioner.

On October 28, 1976, in connection with the same case, petitioner filed with theSecurities and Exchange Commission an "Urgent Motion for Production and Inspectionof Documents", alleging that the Secretary of respondent corporation refused to allowhim to inspect its records despite request made by petitioner for production of certaindocuments enumerated in the request, and that respondent corporation had beenattempting to suppress information from its stockholders despite a negative reply by theSEC to its query regarding their authority to do so. Among the documents requested to becopied were (a) minutes of the stockholder's meeting held on March 13, 1961; (b) copy ofthe management contract between San Miguel Corporation and A. Soriano Corporation(ANSCOR); (c) latest balance sheet of San Miguel International, Inc.; (d) authority of the

stockholders to invest the funds of respondent corporation in San Miguel International,Inc.; and (e) lists of salaries, allowances, bonuses, and other compensation, if any,received by Andres M. Soriano, Jr. and/or its successor-in-interest.

The "Urgent Motion for Production and Inspection of Documents" was opposed byrespondents, alleging, among others, that the motion has no legal basis; that the demandis not based on good faith; that the motion is premature since the materiality or relevanceof the evidence sought cannot be determined until the issues are joined; that it fails toshow good cause and constitutes continued harassment; and that some of the informationsought are not part of the records of the corporation and, therefore, privileged.

During the pendency of the motion for production, respondents San Miguel Corporation,Enrique Conde, Miguel Ortigas and Antonio Prieto filed their answer to the petition,denying the substantial allegations therein and stating, by way of affirmative defensesthat "the action taken by the Board of Directors on September 18, 1976 resulting inthe . . . amendments is valid and legal because the power to 'amend, modify, repeal oradopt new By-laws' delegated to said Board on March 13, 1961 and long prior thereto hasnever been revoked, withdrawn or otherwise nullified by the stockholders of SMC"; that

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contrary to petitioner's claim, "the vote requirement for a valid delegation of the power toamend, repeal or adopt new by-laws is determined in relation to the total subscribedcapital stock at the time the delegation of said power is made, not when the Board opts toexercise said delegated power"; that petitioner has not availed of his intra-corporateremedy for the nullification of the amendment, which is to secure its repeal by vote of the

stockholders representing a majority of the subscribed capital stock at any regular orspecial meeting, as provided in Article VIII, section 1 of the by-laws and section 22 ofthe Corporation Law, hence the petition is premature; that petitioner is estopped fromquestioning the amendments on the ground of lack of authority of the Board, since hefailed to object to other amendments made on the basis of the same 1961 authorization;that the power of the corporation to amend its by-laws is broad, subject only to thecondition that the by-laws adopted should not be inconsistent with any existing law; thatrespondent corporation should not be precluded from adopting protective measures tominimize or eliminate situations where its directors might be tempted to put theirpersonal interests over that of the corporation; that the questioned amended by-laws is a

matter of internal policy and the judgment of the board should not be interfered with; thatthe by-laws, as amended, are valid and binding and are intended to prevent the possibilityof violation of criminal and civil laws prohibiting combinations in restraint of trade; andthat the petition states no cause of action. It was, therefore, prayed that the petition bedismissed and that petitioner be ordered to pay damages and attorney's fees torespondents. The application for writ of preliminary injunction was likewise on variousgrounds.

Respondents Andres M. Soriano, Jr. and Jose M. Soriano filed their opposition to thepetition, denying the material averments thereof and stating, as part of their affirmativedefenses, that in August 1972, the Universal Robina Corporation (Robina), a corporationengaged in business competitive to that of respondent corporation, began acquiring sharestherein, until September 1976 when its total holding amounted to 622,987 shares; that inOctober 1972, the Consolidated Foods Corporation (CFC) likewise began acquiringshares in respondent corporation, until its total holdings amounted to P543,959.00 inSeptember 1976; that on January 12, 1976, petitioner, who is president and controllingshareholder of Robina and CFC (both closed corporations) purchased 5,000 shares ofstock of respondent corporation, and thereafter, in behalf of himself, CFC and Robina,"conducted malevolent and malicious publicity campaign against SMC" to generatesupport from the stockholder "in his effort to secure for himself and in representation ofRobina and CFC interests, a seat in the Board of Directors of SMC", that in thestockholders' meeting of March 18, 1976, petitioner was rejected by the stockholders inhis bid to secure a seat in the Board of Directors on the basic issue that petitioner wasengaged in a competitive business and his securing a seat would have subjectedrespondent corporation to grave disadvantages; that "petitioner nevertheless vowed to

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secure a seat in the Board of Directors at the next annual meeting"; that thereafter theBoard of Directors amended the by-laws as afore-stated.

As counterclaims, actual damages, moral damages, exemplary damages, expenses ofobligation and attorney's fees were presented against petitioner.

Subsequently, a Joint Omnibus Motion for the striking out of the motion for productionand inspection of documents was filed by all the respondents. This was duly opposed bypetitioner. At this juncture, respondents Emigdio Tanjuatco, Sr. and Eduardo R. Visayawere allowed to intervene as oppositors and they accordingly filed their oppositions-in-intervention to the petition.

On December 29, 1976, the Securities and Exchange Commission resolved the motionfor production and inspection of documents by issuing Order No. 26, Series of 1977,stating, in part as follows:

"Considering the evidence submitted before the Commission by the petitionerand respondents in the above-entitled case, it is hereby ordered:

1.That respondents produce and permit the inspection, copying andphotographing, by or on behalf of the petitioner-movant, John Gokongwei, Jr.,of the minutes of the stockholders' meeting of the respondent San MiguelCorporation held on March 13, 1961, which are in the possession, custody andcontrol of the said corporation, it appearing that the same is material andrelevant to the issues involved in the main case. Accordingly, the respondentsshould allow petition-movant entry in the principal office of the respondent

Corporation, San Miguel Corporation on January 14, 1977, at 9:30 o'clock inthe morning for purposes of enforcing the rights herein granted; it beingunderstood that the inspection, copying and photographing of the saiddocuments shall be undertaken under the direct and strict supervision of thisCommission. Provided, however, that other documents and/or papers notheretofore included are not covered by this Order and any inspection thereofshall require the prior permission of this Commission;

2.As to the Balance Sheet of San Miguel International, Inc. as well as the list ofsalaries, allowances, bonuses, compensation and/or remuneration received byrespondent Jose M. Soriano, Jr. and Andres Soriano from San Miguel

International, Inc. and/or its successors-in-interest, the Petition to produce andinspect the same is hereby DENIED, as petitioner-movant is not a stockholderof San Miguel International, Inc. and has, therefore, no inherent right to inspectsaid documents;

3.In view of the Manifestation of petitioner-movant dated November 29, 1976,withdrawing his request to copy and inspect the management contract betweenSan Miguel Corporation and A. Soriano Corporation and the renewal and

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amendments thereof for the reason that he had already obtained the same, theCommission takes note thereof; and

4.Finally, the Commission holds in abeyance the resolution on the matter ofproduction and inspection of the authority of the stockholders of San Miguel

Corporation to invest the funds of respondent corporation in San MiguelInternational, Inc., until after the hearing on the merits of the principal issues inthe above-entitled case.

This Order is immediately executory upon its approval." 2

Dissatisfied with the foregoing Order, petitioner moved for its reconsideration.

Meanwhile, on December 10, 1976, while the petition was yet to be heard, respondentcorporation issued a notice of special stockholders' meeting for the purpose of"ratification and confirmation of the amendment to the By-laws", setting such meeting for

February 10, 1977. This prompted petitioner to ask respondent Commission for asummary judgment insofar as the first cause of action is concerned, for the alleged reasonthat by calling a special stockholders' meeting for the aforesaid purpose, privaterespondents admitted the invalidity of the amendments of September 18, 1976. Themotion for summary judgment was opposed by private respondents. Pending action onthe motion, petitioner filed an "Urgent Motion for the Issuance of a TemporaryRestraining Order", praying that pending the determination of petitioner's application forthe issuance of a preliminary injunction and or petitioner's motion for summaryjudgment, a temporary restraining order be issued, restraining respondents from holdingthe special stockholders' meeting as scheduled. This motion was duly opposed by

respondents.

On February 10, 1977, respondent Cremation issued an order denying the motion forissuance of temporary restraining order. After receipt of the order of denial, respondentsconducted the special stockholders' meeting wherein the amendments to the by-laws wereratified. On February 14, 1977, petitioner filed a consolidated motion for contempt andfor nullification of the special stockholders' meeting.

A motion for reconsideration of the order denying petitioner's motion for summaryjudgment was filed by petitioner before respondent Commission on March 10, 1977.

Petitioner alleges that up to the time of the filing of the instant petition, the said motionhad not yet been scheduled for hearing. Likewise, the motion for reconsideration of theorder granting in part and denying in part petitioner's motion for production of recordshad not yet been resolved.

In view of the fact that the annual stockholders' meeting of respondent corporation hadbeen scheduled for May 10, 1977, petitioner filed with respondent Commission aManifestation stating that he intended to run for the position of director of respondent

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corporation. Thereafter, respondents filed a Manifestation with respondent Commission,submitting a Resolution of the Board of Directors of respondent corporation disqualifyingand precluding petitioner from being a candidate for director unless he could submitevidence on May 3, 1977 that he does not come within the disqualifications specified inthe amendment to the by-laws, subject matter of SEC Case No. 1375. By reason thereof,

petitioner filed a manifestation and motion to resolve pending incidents in the case and toissue a writ of injunction, alleging that private respondents were seeking to nullify andrender ineffectual the exercise of jurisdiction by the respondent Commission, topetitioner's irreparable damage and prejudice. Allegedly despite a subsequentManifestation to prod respondent Commission to act, petitioner was not heard prior to thedate of the stockholders' meeting.

Petitioner alleges that there appears a deliberate and concerted inability on the part of theSEC to act, hence petitioner came to this Court.

SEC CASE NO. 1423

Petitioner likewise alleges that, having discovered that respondent corporation has beeninvesting corporate funds in other corporations and businesses outside of the primarypurpose clause of the corporation, in violation of section 17-1/2 of the Corporation Law,he filed with respondent Commission, on January 20, 1977, a petition seeking to haveprivate respondents Andres M. Soriano, Jr. and Jose M. Soriano, as well as therespondent corporation declared guilty of such violation, and ordered to account for suchinvestments and to answer for damages.

On February 4, 1977, motions to dismiss were filed by private respondents, to which aconsolidated motion to strike and to declare individual respondents in default and anopposition ad abundantiorem cautelam were filed by petitioner. Despite the fact that saidmotions were filed as early as February 4, 1977, the Commission acted thereon only onApril 25, 1977, when it denied respondents' motions to dismiss and gave them two (2)days within which to file their answer, and set the case for hearing on April 29 and May3, 1977.

Respondents issued notices of the annual stockholders' meeting, including in the Agendathereof, the following:

"6.Reaffirmation of the authorization to the Board of Directors by thestockholders at the meeting on March 20, 1972 to invest corporate funds inother companies or businesses or for purposes other than the main purpose forwhich the Corporation has been organized, and ratification of the investmentsthereafter made pursuant thereto."

By reason of the foregoing, on April 28, 1977, petitioner filed with the SEC an urgentmotion for the issuance of a writ of preliminary injunction to restrain private respondents

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from taking up Item 6 of the Agenda at the annual stockholders' meeting, requesting thatthe same be set for hearing on May 3, 1977, the date set for the second hearing of thecase on the merits. Respondent Commission, however, cancelled the dates of hearingoriginally scheduled and reset the same to May 16 and 17, 1977, or after the scheduledannual stockholders' meeting. For the purpose of urging the Commission to act, petitioner

filed an urgent manifestation on May 3, 1977, but this notwithstanding, no action hasbeen taken up to the date of the filing of the instant petition.

With respect to the afore-mentioned SEC cases, it is petitioner's contention before thisCourt that respondent Commission gravely abused its discretion when it failed to act withdeliberate dispatch on the motions of petitioner seeking to prevent illegal and/or arbitraryimpositions or limitations upon his rights as stockholder of respondent corporation, andthat respondent are acting oppressively against petitioner, in gross derogation of

petitioner's rights to property and due process. He prayed that this Court directrespondent SEC to act on collateral incidents pending before it.

On May 6, 1977, this Court issued a temporary restraining order restraining privaterespondents from disqualifying or preventing petitioner from running or from being votedas director of respondent corporation and from submitting for ratification or confirmationor from causing the ratification or confirmation of Item 6 of the Agenda of the annualstockholders' meeting on May 10, 1977, or from making effective the amended by-lawsof respondent corporation, until further orders from this Court or until the Securities andExchange Commission acts on the matters complained of in the instant petition.

On May 14, 1977, petitioner filed a Supplemental Petition, alleging that after arestraining order had been issued by this Court, or on May 9, 1977, the respondentCommission served upon petitioner copies of the following orders:

(1)Order No. 449, Series of 1977 (SEC Case No. 1375); denying petitioner's motion forreconsideration, with its supplement, of the order of the Commission denying in partpetitioner's motion for production of documents, petitioner's motion for reconsiderationof the order denying the issuance of a temporary restraining order denying the issuance ofa temporary restraining order, and petitioner's consolidated motion to declare respondentsin contempt and to nullify the stockholders' meeting;

(2)Order No. 450, Series of 1977 (SEC Case No. 1375), allowing petitioner to run as adirector of respondent corporation but stating that he should not sit as such if elected,until such time that the Commission has decided the validity of the by-laws in dispute,and denying deferment of Item 6 of the Agenda for the annual stockholders' meeting; and

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(3)Order No. 451, Series of 1977 (SEC Case No. 1375), denying petitioner's motion forreconsideration of the order of respondent Commission denying petitioner's motion forsummary judgment;

It is petitioner's assertions, anent the foregoing orders, (1) that respondent Commission

acted with indecent haste and without circumspection in issuing the aforesaid orders topetitioner's irreparable damage and injury; (2) that it acted without jurisdiction and inviolation of petitioner's right to due process when it decided en banc an issue not raisedbefore it and still pending before one of its Commissioners, and without hearingpetitioner thereon despite petitioner's request to have the same calendared for hearing;and (3) that the respondents acted oppressively against the petitioner in violation of hisrights as a stockholder, warranting immediate judicial intervention.

It is prayed in the supplemental petition that the SEC orders complained of be declarednull and void and that respondent Commission be ordered to allow petitioner to undertake

discovery proceedings relative to San Miguel International, Inc. and thereafter to decideSEC Cases No. 1375 and 1423 on the merits.

On May 17, 1977, respondent SEC, Andres M. Soriano, Jr. and Jose M. Soriano filedtheir comment, alleging that the petition is without merit for the following reasons:

(1)that the petitioner and the interests he represents are engaged in businesses competitiveand antagonistic to that of respondent San Miguel Corporation, it appearing that he ownsand controls a greater portion of his SMC stock thru the Universal Robina Corporationand the Consolidated Foods Corporation, which corporations are engaged in businessesdirectly and substantially competing with the allied businesses of respondent SMC and ofcorporations in which SMC has substantial investments. Further, when CFC and Robinahad accumulated shares in SMC, the Board of Directors of SMC realized the clear andpresent danger that competitors or antagonistic parties may be elected directors andthereby have easy and direct access to SMC's business and trade secrets and plans;

(2)that the amended by-laws were adopted to preserve and protect respondent SMC fromthe clear and present danger that business competitors, if allowed to become directors,will illegally and unfairly utilize their direct access to its business secrets and plans fortheir own private gain to the irreparable prejudice of respondent SMC, and, ultimately, itsstockholders. Further, it is asserted that membership of a competitor in the Board of

Directors is a blatant disregard of no less than the Constitution and pertinent laws againstcombinations in restraint of trade;

(3)that by-laws are valid and binding since a corporation has the inherent right and dutyto preserve and protect itself by excluding competitors and antagonistic parties, under thelaw of self-preservation, and it should be allowed a wide latitude in the selection ofmeans to preserve itself;

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(4)that the delay in the resolution and disposition of SEC Cases Nos. 1375 and 1423 wasdue to petitioner's own acts or omissions, since he failed to have the petition to suspend,pendente lite, the amended by-laws calendared for hearing. It was emphasized that it wasonly on April 29, 1977 that petitioner calendared the aforesaid petition for suspension(preliminary injunction) for hearing on May 3, 1977. The instant petition being dated

May 4, 1977, it is apparent that respondent Commission was not given a chance to act"with deliberate dispatch"; and

(5)that even assuming that the petition was meritorious, it has become moot andacademic because respondent Commission has acted on the pending incidentscomplained of. It was, therefore, prayed that the petition be dismissed.

On May 21, 1977, respondent Emigdio G. Tanjuatco, Sr. filed his comment, alleging thatthe petition has become moot and academic for the reason, among others, that the acts ofprivate respondents sought to be enjoined have reference to the annual meeting of the

stockholders of respondent San Miguel Corporation, which was held on May 10, 1977;that in said meeting, in compliance with the order of respondent Commission, petitionerwas allowed to run and be voted for as director; and that in the same meeting, Item 6 ofthe Agenda was discussed, voted upon, ratified and confirmed. Further, it was averredthat the questions and issues raised by petitioner are pending in the Securities andExchange Commission which has acquired jurisdiction over the case, and no hearing onthe merits has been had; hence the elevation of these issues before the Supreme Court ispremature.

Petitioner filed a reply to the aforesaid comments, stating that the petition presentsjusticiable questions for the determination of this Court because (1) the respondentCommission acted without circumspection, unfairly and oppresively against petitioner,warranting the intervention of this Court; (2) a derivative suit, such as the instant case, isnot rendered academic by the act of a majority of stockholders, such that the discussion,ratification and confirmation of Item 6 of the Agenda of the annual stockholders' meetingof May 10, 1977 did not render the case moot; that the amendment to the bylaws whichspecifically bars petitioner from being a director is void since it deprives him of hisvested rights.

Respondent Commission, thru the Solicitor General, filed a separate comment, allegingthat after receiving a copy of the restraining order issued by this Court and noting that the

restraining order did not foreclose action by it, the Commission en banc issued OrdersNos. 449, 450 and 451 in SEC Case No. 1375.

In answer to the allegation in the supplemental petition, it states that Order No. 450which denied deferment of Item 6 of the Agenda of the annual stockholders' meeting ofrespondent corporation, took into consideration an urgent manifestation filed with theCommission by petitioner on May 3, 1977 which prayed, among others, that the

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discussion of Item 6 of the Agenda be deferred. The reason given for denial of defermentwas that "such action is within the authority of the corporation as well as falling withinthe sphere of stockholders' right to know, deliberate upon and/or to express their wishesregarding disposition of corporate funds considering that their investments are the onesdirectly affected." It was alleged that the main petition has, therefore, become moot and

academic.

On September 29, 1977, petitioner filed a second supplemental petition with prayer forpreliminary injunction, alleging that the actuations of respondent SEC tended to deprivehim of his right to due process, and "that all possible questions on the facts now pendingbefore the respondent Commission are now before this Honorable Court which has theauthority and the competence to act on them as it may see fit." (Rollo, pp. 927-928.)

Petitioner, in his memorandum, submits the following issues for resolution;

(1)Whether or not the provisions of the amended by-laws of respondent corporation,disqualifying a competitor from nomination or election to the Board of Directors arevalid and reasonable;

(2)whether or not respondent SEC gravely abused its discretion in denying petitioner'srequest for an examination of the records of San Miguel International, Inc., a fully ownedsubsidiary of San Miguel Corporation; and

(3)whether or not respondent SEC committed grave abuse of discretion in allowingdiscussion of Item 6 of the Agenda of the Annual Stockholders' Meeting on May 10,1977, and the ratification of the investment in a foreign corporation of the corporatefunds, allegedly in violation of section 17-1/2 of the Corporation Law.

I

Whether or not amended by-laws are valid is purely a legal question, which public

interest requires to be resolved

It is the position of the petitioner that "it is not necessary to remand the case to

respondent SEC for an appropriate ruling on the intrinsic validity of the amended by-lawsin compliance with the principle of exhaustion of administrative remedies", consideringthat: first: "whether or not the provisions of the amended by-laws are intrinsically valid . .. is purely a legal question. There is no factual dispute as to what the provisions are andevidence is not necessary to determine whether such amended by-laws are valid asframed and approved . . ."; second: "it is for the interest and guidance of the public that animmediate and final ruling on the question be made . . ."; third: "petitioner was denied

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due process by SEC" when "Commissioner de Guzman had openly shown prejudiceagainst petitioner . . .", and "Commissioner Sulit . . . approved the amended by-laws ex-parte and obviously found the same intrinsically valid"; and finally: "to remand the caseto SEC would only entail delay rather than serve the ends of justice."

Respondents Andres M. Soriano, Jr. and Jose M. Soriano similarly pray that this Courtresolve the legal issues raised by the parties in keeping with the "cherished rules ofprocedure" that "a court should always strive to settle the entire controversy in a singleproceeding leaving no root or branch to bear the seeds of future ligiation", citing Gayosv. Gayos. 3 To the same effect is the prayer of San Miguel Corporation that this Courtresolve on the merits the validity of its amended by-laws and the rights and obligations ofthe parties thereunder, otherwise "the time spent and effort exerted by the partiesconcerned and, more importantly, by this Honorable Court, would have been for naughtbecause the main question will come back to this Honorable Court for final resolution."Respondent Eduardo R. Visaya submits a similar appeal.

It is only the Solicitor General who contends that the case should be remanded to the SECfor hearing and decision of the issues involved, invoking the latter's primary jurisdictionto hear and decide cases involving intra-corporate controversies.

It is an accepted rule of procedure that the Supreme Court should always strive to settlethe entire controversy in a single proceeding, leaving no root or branch to bear the seedsof future litigation. 4 Thus, inFrancisco v. City of Davao,5 this Court resolved to decidethe case on the merits instead of remanding it to the trial court for further proceedingssince the ends of justice would not be subserved by the remand of the case. InRepublic v.Security Credit and Acceptance Corporation, et al.,6this Court, finding that the mainissue is one of law, resolved to decide the case on the merits "because public interestdemands an early disposition of the case", and inRepublic v. Central Surety andInsurance Company,7 this Court denied remand of the third-party complaint to the trialcourt for further proceedings, citing precedents where this Court, in similar situations,resolved to decide the cases on the merits, instead of remanding them to the trial courtwhere (a) the ends of justice would not be subserved by the remand of the case; or (b)where public interest demands an early disposition of the case; or (c) where the trial courthad already received all the evidence presented by both parties and the Supreme Court isnow in a position, based upon said evidence, to decide the case on its merits. 8 It is settledthat the doctrine of primary jurisdiction has no application where only a question of law

is involved. 8 Because uniformity may be secured through review by a single SupremeCourt, questions of law may appropriately be determined in the first instance by courts. 8In the case at bar, there are facts which cannot be denied, viz: that the amended by-lawswere adopted by the Board of Directors of the San Miguel Corporation in the exercise ofthe power delegated by the stockholders ostensibly pursuant to section 22 of theCorporation Law; that in a special meeting on February 10, 1977 held specially for thatpurpose, the amended by-laws were ratified by more than 80% of the stockholders of

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record; that the foreign investment in the Hongkong Brewery and Distillery, a beermanufacturing company in Hongkong, was made by the San Miguel Corporation in 1948;and that in the stockholders' annual meeting held in 1972 and 1977, all foreigninvestments and operations of San Miguel Corporation were ratified by the stockholders.

II

Whether or not the amended by-laws of SMC disqualifying a competitor from nomination

or election to the Board of Directors of SMC are valid and reasonable

The validity or reasonableness of a by-law of a corporation is purely a question of law. 9Whether the by-law is in conflict with the law of the land, or with the charter of thecorporation, or is in a legal sense unreasonable and therefore unlawful is a question oflaw. 10 This rule is subject, however, to the limitation that where the reasonableness of aby-law is a mere matter of judgment, and one upon which reasonable minds must

necessarily differ, a court would not be warranted in substituting its judgment instead ofthe judgment of those who are authorized to make by-laws and who have exercised theirauthority. 11

Petitioner claims that the amended by-laws are invalid and unreasonable because theywere tailored to suppress the minority and prevent them from having representation in theBoard", at the same time depriving petitioner of his "vested right" to be voted for and tovote for a person of his choice as director.

Upon the other hand, respondents Andres M. Soriano, Jr., Jose M. Soriano and SanMiguel Corporation content that exclusion of a competitor from the Board is legitimatecorporate purpose, considering that being a competitor, petitioner cannot devote anunselfish and undivided loyalty to the corporation; that it is essentially a preventivemeasure to assure stockholders of San Miguel Corporation of reasonable protection fromthe unrestrained self-interest of those charged with the promotion of the corporateenterprise; that access to confidential information by a competitor may result either in thepromotion of the interest of the competitor at the expense of the San Miguel Corporation,or the promotion of both the interests of petitioner and respondent San MiguelCorporation, which may, therefore, result in a combination or agreement in violation ofArticle 186 of the Revised Penal Code by destroying free competition to the detriment ofthe consuming public. It is further argued that there is not vested right of any stockholder

under Philippine Law to be voted as director of a corporation. It is alleged that petitioner,as of May 6,1978, has exercised, personally or thru two corporations owned or controlledby him, control over the following shareholdings in San Miguel Corporation, vis.: (a)John Gokongwei, Jr. 6,325 shares; (b) Universal Robina Corporation 738,647shares; (c) CFC Corporation 658,313 shares, or a total of 1,403,285 shares. Since theoutstanding capital stock of San Miguel Corporation, as of the present date, is representedby 33,139,749 shares with a par value of P10.00, the total shares owned or controlled by

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petitioner represents 4.2344% of the total outstanding capital stock of San MiguelCorporation. It is also contended that petitioner is the president and substantialstockholder of Universal Robina Corporation and CFC Corporation, both of which areallegedly controlled by petitioner and members of his family. It is also claimed that boththe Universal Robina Corporation and the CFC Corporation are engaged in businesses

directly and substantially competing with the allied businesses of San MiguelCorporation, and of corporations in which SMC has substantial investments.

ALLEGED AREAS OF COMPETITION BETWEEN PETITIONER'S

CORPORATIONS AND SAN MIGUEL CORPORATION

According to respondent San Miguel Corporation, the areas of, competition areenumerated in its Board the areas of competition are enumerated in its Board Resolutiondated April 28, 1978, thus:

Product LineEstimatedMarket ShareTotal1977 SMCRobina-CFC

Table Eggs0.6%10.0%10.6%Layer Pullets33.0%24.0%57.0%Dressed Chicken35.0%14.0%49.0%Poultry & Hog Feeds40.0%12.0%52.0%Ice Cream70.0%13.0%83.0%Instant Coffee45.0%40.0%85.0%Woven Fabrics17.5%9.1%26.6%

Thus, according to respondent SMC, in 1976, the areas of competition affecting SMCinvolved product sales of over P400 million or more than 20% of the P2 billion totalproduct sales of SMC. Significantly, the combined market shares of SMC and CFC-Robina in layer pullets, dressed chicken, poultry and hog feeds, ice cream, instant coffeeand woven fabrics would result in a position of such dominance as to affect the prevailingmarket factors.

It is further asserted that in 1977, the CFC-Robina group was in direct competition onproduct lines which, for SMC, represented sales amounting to more than P478 million. Inaddition, CFC-Robina was directly competing in the sale of coffee with Filipino, asubsidiary of SMC, which product line represented sales for SMC amounting to morethan P275 million. The CFC-Robina group (Robitex, excluding Litton Mills recently

acquired by petitioner) is purportedly also in direct competition with Ramie Textile, Inc.,subsidiary of SMC, in product sales amounting to more than P95 million. The areas ofcompetition between SMC and CFC-Robina in 1977 represented, therefore, for SMC,product sales of more than P849 million.

According to private respondents, at the Annual Stockholders' Meeting of March 18,1976, 9,894 stockholders, in person or by proxy, owning 23,436,754 shares in SMC, or

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more than 90% of the total outstanding shares of SMC, rejected petitioner's candidacy forthe Board of Directors because they "realized the grave dangers to the corporation in theevent a competitor gets a board seat in SMC." On September 18, 1978, the Board ofDirectors of SMC, by "virtue of powers delegated to it by the stockholders," approved theamendment to the by-laws in question. At the meeting of February 10, 1977, these

amendments were confirmed and ratified by 5,716 shareholders owning 24,283,945shares, or more than 80% of the total outstanding shares. Only 12 shareholders,representing 7,005 shares, opposed the confirmation and ratification. At the AnnualStockholders' Meeting of May 10, 1977, 11,349 shareholders, owning 27,257.014 shares,or more than 90% of the outstanding shares, rejected petitioner's candidacy, while 946stockholders, representing 1,648,801 shares voted for him. On the May 9, 1978 AnnualStockholders' Meeting, 12,480 shareholders, owning more than 30 million shares, ormore than 90% of the total outstanding shares, voted against petitioner.

AUTHORITY OF CORPORATION TO PRESCRIBE QUALIFICATIONS OF

DIRECTORS EXPRESSLY CONFERRED BY LAW

Private respondents contend that the disputed amended by-laws were adopted by theBoard of Directors of San Miguel Corporation as a measure of self-defense to protect thecorporation from the clear and present danger that the election of a business competitor tothe Board may cause upon the corporation and the other stockholders "irreparableprejudice." Submitted for resolution, therefore, is the issue whether or not respondentSan Miguel Corporation could, as a measure of self-protection, disqualify a competitorfrom nomination and election to its Board of Directors.

It is recognized by all authorities that 'every corporation has the inherent power to adoptby-laws 'for its internal government, and to regulate the conduct and prescribe the rightsand duties of its members towards itself and among themselves in reference to themanagement of its affairs.'"12 At common law, the rule was "that the power to make andadopt by-laws was inherentin every corporation as one of its necessary and inseparablelegal incidents. And it is settled throughout the United States that in the absence ofpositive legislative provisions limiting it, every private corporation has this inherentpower as one of its necessary and inseparable legal incidents, independent of any specificenabling provision in its charter or in general law, such power of self-government being

essential to enable the corporation to accomplish the purposes of its creation." 13

In this jurisdiction under section 21 of the Corporation Law, a corporation may prescribein its by-laws "the qualifications, duties and compensation of directors, officers andemployees . . ." This must necessarily refer to a qualification in addition to that specifiedby section 30 of the Corporation Law, which provides that "every director must own inhis right at least one share of the capital stock of the stock corporation of which he is a

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director . . ." In Government v. El Hogar,14 the Court sustained the validity of aprovision in the corporate by-law requiring that persons elected to the Board of Directorsmust be holders of shares of the paid up value of P5,000.00, which shall be held assecurity for their action, on the ground that section 21 of the Corporation Law expresslygives the power to the corporation to provide in its by-laws for the qualifications of

directors and is "highly prudent and in conformity with good practice."

NO VESTED RIGHT OF STOCKHOLDER TO BEELECTED DIRECTOR

Any person "who buys stock in a corporation does so with the knowledge that its affairsare dominated by a majority of the stockholders and that he impliedly contracts that thewillof the majority shall govern in all matters within the limits of the act of incorporationand lawfully enacted by-laws and not forbidden by law." 15 To this extent, therefore, thestockholder may be considered to have "parted with his personal right or privilege to

regulate the disposition of his property which he has invested in the capital stock of thecorporation, and surrendered it to the will of the majority of his fellow incorporators. . . .It can not therefore be justly said that the contract, express or implied, between thecorporation and the stockholders is infringed . . . by any act of the former which isauthorized by a majority . . ." 16

Pursuant to section 18 of the Corporation Law, any corporation may amend its articles

of incorporation by a vote or written assent of the stockholders representing at least two-

thirds of the subscribed capital stock of the corporation. If the amendment changes,

diminishes or restricts the rights of the existing shareholders, then the dissenting

minority has only one right, viz.: "to object thereto in writing and demand payment forhis share." Under section 22 of the same law, the owners of the majority of the subscribedcapital stock may amend or repeal any by-law or adopt new by-laws. It cannot be said,therefore, that petitioner has a vestedright to be elected director, in the face of the factthat the law at the time such right as stockholder was acquired contained the prescriptionthat the corporate charter and the by-law shall be subject to amendment, alteration andmodification. 17

It being settled that the corporation has the power to provide for the qualifications of itsdirectors, the next question that must be considered is whether the disqualification of acompetitor from being elected to the Board of Directors is a reasonable exercise of

corporate authority.

A DIRECTOR STANDS IN A FIDUCIARY RELATION TO THE CORPORATION

AND ITS SHAREHOLDERS

Although in the strict and technical sense, directors of a private corporation are notregarded as trustees, there cannot be any doubt that their character is that of a fiduciary

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insofar as the corporation and the stockholders as a body are concerned. As agentsentrusted with the management of the corporation for the collective benefit of thestockholders, "they occupy a fiduciary relation, and in this sense the relation is one oftrust." 18 "The ordinary trust relationship of directors of a corporation and stockholders",according toAshaman v. Miller, 19 "is not a matter of statutory or technical law. It springs

from the fact that directors have the control and guidance of corporate affairs andproperty and hence of the property interests of the stockholders. Equity recognizes thatstockholders are the proprietors of the corporate interests and are ultimately the onlybeneficiaries thereof . . ."

Justice Douglas, inPepper v. Litton, 20 emphatically restated the standard of fiduciaryobligation of the directors of corporations, thus:

"A director is a fiduciary. . . . Their powers are powers in trust. . . . He who is insuch fiduciary position cannot serve himself first and his cestuis second. . . . He

cannot manipulate the affairs of his corporation to their detriment and indisregard of the standards of common decency. He cannot by the intervention ofa corporate entity violate the ancient precept against serving two masters. . . .He cannot utilize his inside information and strategic position for his ownpreferment. He cannot violate rules of fair play by doing indirectly through thecorporation what he could not do so directly. He cannot violate rules of fair playby doing indirectly through the corporation what he could not do so directly. Hecannot use his power for his personal advantage and to the detriment of thestockholders and creditors no matter how absolute in terms that power may beand no matter how meticulous he is to satisfy technical requirements. For thatpower is at all times subject to the equitable limitation that it may not beexercised for the aggrandizement, preference, or advantage of the fiduciary tothe exclusion or detriment of the cestuis."

And in Cross v. West Virginia Cent, & P. R. R. Co.,21 it was said:

". . . A person cannot serve two hostile and adverse masters without detriment toone of them. A judge cannot be impartial if personally interested in the cause.No more can a director. Human nature is too weak for this. Take whateverstatute provision you please giving power to stockholders to choose directors,and in none will you find any express prohibition against a discretion to selectdirectors having the company's interest at heart, and it would simply be goingfar to deny by mere implication the existence of such a salutary power.

". . . If the by-law is to be held reasonable in disqualifying a stockholder in acompeting company from being a director, the same reasoning would apply todisqualify the wife and immediate member of the family of such stockholder, onaccount of the supposed interest of the wife in her husband's affairs, and hissupposed influence over her. It is perhaps true that such stockholders ought notto be condemned as selfish and dangerous to the best interest of the corporation

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until tried and tested. So it is also true that we cannot condemn as selfish anddangerous and unreasonable the action of the board in passing the by-law. Thestrife over the matter of control in this corporation as in many others is perhapscarried on not altogether in the spirit of brotherly love and affection. The onlytest that we can apply is as to whether or not the action of the Board is

authorized and sanctioned by law. . . ."22

These principles have been applied by this Court in previous cases. 23

AN AMENDMENT TO THE CORPORATE BY-LAW WHICH RENDERS A

STOCKHOLDER INELIGIBLE TO BE DIRECTOR, IF HE BE ALSO DIRECTOR IN

A CORPORATION WHOSE BUSINESS IS IN COMPETITION WITH THAT OF THEOTHER CORPORATION, HAS BEEN SUSTAINED AS VALID

It is a settled state law in the United States, according to Fletcher, that corporations havethe power to make by-laws declaring a person employed in the service of a rival company

to be ineligible for the corporation's Board of Directors. ". . . (A)n amendment whichrenders ineligible, or if elected, subjects to removal, a director if he be also a director in acorporation whose business is in competition with or is antagonistic to the othercorporation is valid." 24 This is based upon the principle that where the director is soemployed in the service of a rival company, he cannot serve both, but must betray one orthe other. Such an amendment "advances the benefit of the corporation and is good." Anexception exists in New Jersey, where the Supreme Court held that the Corporation Lawin New Jersey prescribed the only qualification, and therefore the corporation was notempowered to add additional qualifications. 25 This is the exact opposite of the situationin the Philippines because as stated heretofore, section 21 of the Corporation Lawexpressly provides that a corporation may make by-laws for the qualifications ofdirectors. Thus, it has been held that an officer of a corporation cannot engage in abusiness in direct competition with that of the corporation where he is a director byutilizing information he has received as such officer, under "the established law that adirector or officer of a corporation may not enter into a competing enterprise whichcripples or injures the business of the corporation of which he is an officer or director." 26

It is also well established that corporate officers "are not permitted to use their position oftrust and confidence to further their private interests." 27 In a case where directors of a

corporation cancelled a contract of the corporation for exclusive sale of a foreign firm'sproducts, and after establishing a rival business, the directors entered into a new contractthemselves with the foreign firm for exclusive sale of its products, the court held thatequity would regard the new contract as an offshoot of the old contract and, therefore, forthe benefit of the corporation, as a "faultless fiduciary may not reap the fruits of hismisconduct to the exclusion of his principal. 28

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The doctrine of "corporate opportunity" 29is precisely a recognition by the courts thatthe fiduciary standards could not be upheld where the fiduciary was acting for twoentities with competing interests. This doctrine rests fundamentally on the unfairness, inparticular circumstances, of an officer or director taking advantage of an opportunity forhis own personal profit when the interest of the corporation justly calls for protection. 30

It is not denied that a member of the Board of Directors of the San Miguel Corporationhas access to sensitive and highly confidential information, such as: (a) marketingstrategies and pricing structure; (b) budget for expansion and diversification; (c) researchand development; and (d) sources of funding, availability of personnel, proposals ofmergers or tie-ups with other firms.

It is obviously to prevent the creation of an opportunity for an officer or director of SanMiguel Corporation, who is also the officer or owner of a competing corporation, fromtaking advantage of the information which he acquires as director to promote his

individual or corporate interests to the prejudice of San Miguel Corporation and itsstockholders, that the questioned amendment of the by-laws was made. Certainly, wheretwo corporations are competitive in a substantial sense, it would seem improbable, if notimpossible, for the director, if he were to discharge effectively his duty, to satisfy hisloyalty to both corporations and place the performance of his corporation duties above hispersonal concerns.

Thus, inMcKee & Co. v. First National Bank of San Diego, supra, the court sustained asvalid and reasonable an amendment to the by-laws of a bank, requiring that its directorsshould not be directors, officers, employees, agents, nominees or attorneys of any otherbanking corporation, affiliate or subsidiary thereof. Chief Judge Parker, inMcKee,explained the reasons of the court, thus:

". . . A bank director has access to a great deal of information concerning thebusiness and plans of a bank which would likely be injurious to the bank ifknown to another bank, and it was reasonable and prudent to enlarge thisminimum disqualification to include any director, officer, employee, agent,nominee, or attorney of any other bank in California. TheAshkins case, supra,specifically recognizes protection against rivals and others who mightacquireinformation which mightbe used against the interests of the corporation as alegitimate object of by-law protection. With respect to attorneys or personsassociated with a firm which is attorney for another bank, in addition to thedirect conflict or potential conflict of interest, there is also the danger ofinadvertent leakage of confidential information through casual officediscussions or accessibility of files. Defendant's directors determined that itswelfare was best protected if this opportunity for conflicting loyalties andpotential misuse and leakage of confidential information was foreclosed."

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InMcKee, the Court further listed qualificational by-laws upheld by the courts, asfollows:

"(1)A director shall not be directly or indirectly interested as a stockholder inany other firm, company, or association which competes with the subject

corporation.

(2)A director shall not be the immediate member of the family of anystockholder in any other firm, company, or association which competes with thesubject corporation.

(3)A director shall not be an officer, agent, employee, attorney, or t